Although it may seem like it, European woes haven't cornered the market on pessimistic headlines. There are also concerns about slowing growth in the emerging markets. What does this mean for the U.S economy? Here with me to discuss is Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: Some estimates of second-quarter U.S. GDP have come in a little bit, and part of that is due to exports weakening. Some folks think this is going to happen because of the woes we’re seeing not only in Europe, but also in emerging markets. We recently got an import-export report, the balance of trade. Does that show that we’re seeing some weakening in exports?

Johnson: Well, if you go back over a long series of data, yes, the export growth rate has slowed. We were in the 30% range in 2010; of course, that was off a terrible base in 2009. Then last year, in 2011, it was in the 10% to 15% range. And for the first five months of this year, it looks like we’ve slipped back down to 6% for total exports throughout the world. So, clearly we’ve seen a slowing there.

What was interesting in the report that we got this week is right in the middle of the European crisis, the month of May, our exports actually went up from April to May to Europe. And they certainly don’t show signs of falling off a cliff. They're not robust growth, but we really haven’t fallen of the cliff. And I think a lot of them are agricultural products, some of it is petroleum related where we refine stuff and ship it back.

So I think there are a lot of things going on in, and really we just haven't seen a falling apart yet, but it's certainly slower than it was, and we’re going to have to make up for that elsewhere in our economy.

Stipp: So, overall slowing trend, but it sounds like some of the things we’re exporting are somewhat non-discretionary, in that at least we'll have some support or a floor for exports given that.

Johnson: Absolutely right. Boeing airliners, for example. Those are on a delivery schedule; they're just going to keep coming.

Stipp: OK. So, when we’re thinking about the export market and who makes up the world economy and what our market is for U.S. goods, how do you break down the globe? ... How does [the economy] break down between U.S. and Europe and emerging markets?

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Johnson: The term "emerging markets," some people use "emerging markets," some people use "developing markets," but they're certainly not small markets anymore. And to give an example, the U.S. and Europe and the BRICs (Brazil, Russia, India, and China) combined--you put those all together--the U.S. is about a quarter of the world economy, Europe is about a quarter of the economy, and the BRICs are about a quarter of the economy, and then another quarter is kind of an amalgamation of South America and Africa and OPEC and so forth. But the emerging markets or developing markets or BRICs, whatever you want to call them, are about 25% of the world economy.

Stipp: So, you can’t ignore them ...

Johnson: No.

Stipp: and what's going on in the emerging market when you're thinking about what the effect could be in the U.S.

So let’s walk through some of the emerging markets, because I think an interesting thing to note is, although we talk about them collectively, there actually are distinctions between the emerging markets ...

Johnson: Yes.

Stipp: ... and the factors that are underlying in their economies. So let’s start with the big one that’s on most people's minds, China. We saw some action there by the government recently, and we’ve seen action over the last few years, one way or the other. What’s the story in China right now, and what's your take on their economic strength?

Johnson: China represents about half of the BRICs in terms of the size of their economy, and they are certainly slowing. At the peak of the recovery, say in 2010, they were probably running growth rates of 12%. They’ve dipped back to more like the 8% to 10%, and now within the next few days, we’ll get more economic numbers out of China, and they will probably show that growth has slowed into the 7% to 8% range. So, clearly still numbers a lot of countries would dream of having, but certainly much slower than what they have been, and it takes that type of growth to suck up a lot of the commodities.

Stipp: Do you think that the way the government has handled it so far, do you feel like they'll be able to avert a so-called hard landing or is that really still up in the air?

Johnson: Well, you know there's a lot of controversy about it. Do you trust the whole set of Chinese data to start with, and certainly some of our work suggests that maybe the economy in China is not as robust as the 7%-8% even right now. So, they’ve clearly had two things happen. They’ve had a slowing internal market for housing, which they tried to slow on purpose because inflation both on food and real estate was putting some of those things out of the reach of the everyday Chinese consumer. So, they were trying to slow things for much of last year, and now they’re kind of getting their wish, maybe more than they wanted.

Stipp: So, if we do see some slowing, and I think that we’ve expected that the emerging markets would slow a bit, specifically in China, what might that mean for the U.S. economy?

Johnson: Well, we ship very little to China. China represents about 1% of our GDP. Now the big things that we ship to them, obviously, airliners and soybeans are probably two of our very biggest, and then also--and we’re hearing all about it this week--a lot of industrial machinery--things that mine coal, things that excavate for buildings, those are all things where the numbers have turned up weak. Whether the numbers are from Cummins or Caterpillar or whoever the name, we're certainly seeing some slowing.

Stipp: So, we may see some companies suffer, but the economy overall given that it's about 1% [of the U.S. economy], even if China does slow down, it might not have an outsized impact on you on U.S.?

Johnson: On the U.S.

Stipp: So, let’s move to India, another big emerging market country. What are the issues facing India and how are those different from China?

Johnson: Well, India had the reputation of being maybe the next China. That maybe they had finally gotten their act together and ... and because their population is younger, maybe they'd even grow faster than China.

But they've certainly got a lot of regulatory issues going on in India ... where they're kind of getting pushed and shoved on that front, and retailers from outside of India were not allowed in. They're imposing a new tax on foreign investment, and so a number of things have happened that have slowed things down. They introduced some anti-corruption programs. And all those things seem to have faded in the last 6 to 9 months. And certainly, they’ve had some commodity price increases that really have hit their economy hard. So, again, that’s an economy that was growing 8% to 10%. Maybe they'll be lucky to grow 5% this year. So that's one that's kind of slowed a lot, and they’re getting hit, we saw today I think even in Infosys, the big outsourcing market for computer services, is a market that slowed, and it's definitely having an impact on India, and that’s the middle-class consumers in India.

Stipp: And we should note as well that emerging-market stocks in general have reflected a lot of the slowing that we’ve seen. They haven’t performed very well over the last year.

Johnson: No, they haven’t. It's been one of the worst-performing sectors on the economy. And we surmise that maybe it would, because a lot of them are tied to commodities, and certainly they are hurting on that front.

Stipp: So speaking of another emerging market that's tied to commodities: Brazil. What’s the story with Brazil and what are the main drivers there?

Johnson: Yeah. Now that economy is another one that's really slowed. They kind of had 8% to 10% growth in 2010, and last year it slowed a little bit to the 4% to 5% range. Now this year it looks like 2%. So, that's one that's come way back in, and they’ve had a number of problems. Their currency got really, really high, so it made some of their manufacturing exports noncompetitive. Then you've got some of the iron ore and stuff they ship to China, so there you've got the interrelationship between China and Brazil starting to slow down, so that's slowed them down a bit. I think some of the oil and gas development that we all hoped would help them is taking a lot longer than we all hoped, and is turning out to be a lot more expensive than we all thought.

So, that's clearly an economy that slowed way down, and they're trying to do, again like China, a lot of things to stimulate. They brought interest rates down, their currency has fallen a bit, so all of that should start to help them a little bit, but all that stuff takes time.

Stipp: And lastly the R in BRICs, Russia. What’s the story with Russia right now? Also it seems they have close ties to commodities, too?

Johnson: That is one that over the last couple of years has actually done a little bit better. They’ve grown at 4% or so, which for them is a very good number, and compared to the world economies and Europe, it's certainly better. But a lot of that’s been oil- and gas-related, and they’ve really done quite well.

And that's good news and that’s really helped them, and they've been one of the stronger countries in the BRICs even, but now that's about to fade a little bit as oil and gas prices begin to come down, and oil and gas demand even falls. That’s going to put Russia in a little tougher spot by the end of the year. So, ... they're one that's been relatively strong, and the high oil prices have hurt India, but then they’ve helped Russia.

Stipp: So, if you tie this all together: We're obviously seeing continuing struggles in a lot of the developed markets, in Europe. We’re seeing some slowing across the emerging markets. Even if their growth rates look better in absolute terms versus the U.S., how would you characterize the relative strength of those four big global economies that you mentioned at the start of the video?

Johnson: I would think that the emerging markets are slowing, and because everybody was turning to them for growth, I think that is having an impact on the whole world economy, and they do represent 25% of the economy, and certainly one affects the other. I would claim that probably the emerging-markets countries affect each other probably more than they affect Europe and the United States. So, I think that's the issue that we're all going to have to deal with here.

Stipp: So, ironically, given that we see lackluster enthusiasm for the U.S. economy, would you say that in relative terms, we’re actually in a pretty good position compared with the rest of the world at this point?

Johnson: I think we’re in a relatively good position.

We’ve got some of everything in this economy. We have some of our own oil production. We certainly have pretty good control of our agricultural commodities, barring the drought here that we're having. We've certainly got a more service-oriented economy, where we sell movies and other things abroad that help our balance of trade.

So, we’ve got a more varied economy, a more flexible economy than most, and I think we are adapting pretty well. I think we are going to see a little slowing this year, but I think we are in pretty good shape overall.

Stipp: Bob, thanks for setting the stage on the global economic situation today and for joining me.

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